Question 1

Refer to the graph shown. An effective price floor at Pf causes consumer surplus to: f causes consumer surplus to:   A)  change from areas C + D + F to areas B + C + D. B)  change from areas A + B + E to areas A + B + C. C)  fall from areas C + D + F to area D. D)  fall from areas A + B + E to area A." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   change from areas C + D + F to areas B + C + D.
B)   change from areas A + B + E to areas A + B + C.
C)   fall from areas C + D + F to area D.
D)   fall from areas A + B + E to area A.

Question 2

Refer to the graph shown. The segment of the demand curve between the initial equilibrium price of $5.00 and the new equilibrium price of $3.00 is:

Accepted Answer

A)   elastic.
B)   inelastic.
C)   perfectly elastic.
D)   perfectly inelastic.

Question 3

Refer to the following graph.  Given a tax of t on suppliers, revenue collected is:

Accepted Answer

A)   A, B, C. Suppliers pay A and B. Consumers pay C.
B)   A, B, C. Suppliers pay B and C. Consumers pay A.
C)   A and B. Suppliers pay A. Consumers pay B.
D)   A and B. Suppliers pay B. Consumers pay A.

Question 4

Refer to the graph shown. If the government imposed a price ceiling of $4, consumer surplus would:

Accepted Answer

A)   fall from 12 to 4.
B)   fall from 12 to 8.
C)   rise from 12 to 13.
D)   be unchanged at 12.

Question 5

Refer to the graph shown. With an effective price ceiling at Pc, the effect is an implicit tax on:

Accepted Answer

A)   suppliers of area C and a subsidy to consumers of that area.
B)   suppliers of area D and a subsidy to consumers of that area.
C)   consumers of area C and a subsidy to suppliers of that area.
D)   consumers of area D and a subsidy to suppliers of that area.

Question 6

Assuming a binding price floor, the more inelastic the supply and the demand curves are, the:

Accepted Answer

A)   smaller the shortage a price floor will create.
B)   greater the shortage a price floor will create.
C)   smaller the surplus a price floor will create.
D)   greater the surplus a price floor will create.

Question 7

Refer to the graph shown. With an effective price ceiling at Pc, total surplus is reduced by:

Accepted Answer

A)   rectangles B and C.
B)   rectangles A and D.
C)   triangles E and F.
D)   rectangle B and triangle E.

Question 8

Refer to the graph shown. An effective price floor at $8 imposes a deadweight loss of:

Accepted Answer

A)   25.
B)   45.
C)   90.
D)   100.

Question 9

Rent-seeking activities:

Accepted Answer

A)   require resources, and the net result is to reduce total welfare to society.
B)   require resources, but the net result is to increase total welfare to society.
C)   do not require resources.
D)   have no effect on society's welfare.

Question 10

Suppose elasticity of demand is 1, elasticity of supply is 2, and a 5 percent excise tax is levied on consumers. Which of the following changes will reduce the burden of the tax on consumers?

Accepted Answer

A)   Elasticity of demand falls to 0.
B)   Elasticity of demand rises to 2.
C)   Taxing authorities levy the tax on suppliers.
D)   Nothing will change the burden of the tax.

Question 11

If price is lowered by law from the market equilibrium value of $5 to a lower value of $4:

Accepted Answer

A)   both producer surplus and consumer surplus will increase.
B)   consumer surplus will decrease and there will be some total surplus lost.
C)   producer surplus will decrease and there will be some total surplus lost.
D)   there will be lost surplus, as both producer surplus and consumer surplus decrease.

Question 12

An excise tax on alcohol causes the supply of alcohol to decrease and the price of alcohol to decrease.

Accepted Answer

A) True 
 B)False

Question 13

Refer to the graph shown. Assume the market is initially in equilibrium at point b in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S0 to S1. The amount of revenue government will collect from this tax is equal to the: 0 to S1. The amount of revenue government will collect from this tax is equal to the:   A)  amount of the per-unit tax multiplied by Q1. B)  amount of the per-unit tax multiplied by Q2. C)  area of the triangle abc. D)  area of the triangle bcd." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   amount of the per-unit tax multiplied by Q1.
B)   amount of the per-unit tax multiplied by Q2.
C)   area of the triangle abc.
D)   area of the triangle bcd.

Question 14

Refer to the graph shown. Assume the market is initially in equilibrium at point j in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S0 to S1. The lost producer surplus of this tax is equal to the area: 0 to S1. The lost producer surplus of this tax is equal to the area:   A)  cdjh. B)  deij. C)  hji. D)  khj." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   cdjh.
B)   deij.
C)   hji.
D)   khj.

Question 15

If the supply curve is perfectly inelastic, the burden of a tax on suppliers is borne:

Accepted Answer

A)   entirely by the suppliers.
B)   entirely by the consumers.
C)   mostly by the suppliers and partly by the consumers if the demand curve is inelastic.
D)   partly by the suppliers and mostly by the consumers if the demand curve is elastic.

Question 16

Refer to the graph shown. When the market is in equilibrium, consumer surplus is equal to:

Accepted Answer

A)   500.
B)   1,000.
C)   1,500.
D)   2,000.

Question 17

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. If the government imposes a $2 per-unit tax on this product, equilibrium quantity will change to:

Accepted Answer

A)   30.
B)   50.
C)   60.
D)   100.

Question 18

Refer to the graph shown. An effective price ceiling at $3 imposes a deadweight loss of:

Accepted Answer

A)   20.
B)   30.
C)   50.
D)   100.

Question 19

Total consumer surplus is measured as the area:

Accepted Answer

A)   between the demand curve and the supply curve.
B)   above the demand curve.
C)   beneath the demand curve and above the market price.
D)   beneath the market price and above the supply curve.

Question 20

Refer to the graph shown. An effective price floor at Pf imposes a deadweight loss shown by: f imposes a deadweight loss shown by:   A)  rectangles B and C. B)  rectangles A and D. C)  triangles E and F. D)  rectangle B and triangle E." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   rectangles B and C.
B)   rectangles A and D.
C)   triangles E and F.
D)   rectangle B and triangle E.

Exam 7: Taxation and Government Intervention

Refer to the graph shown. If the government imposed a price ceiling of $4, consumer surplus would:

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Suppose elasticity of demand is 1, elasticity of supply is 2, and a 5 percent excise tax is levied on consumers. Which of the following changes will reduce the burden of the tax on consumers?

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Refer to the graph shown. An effective price floor at Pf imposes a deadweight loss shown by:

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Total consumer surplus is measured as the area:

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Assuming a binding price floor, the more inelastic the supply and the demand curves are, the:

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Refer to the following graph. Given a tax of t on suppliers, revenue collected is:

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An excise tax on alcohol causes the supply of alcohol to decrease and the price of alcohol to decrease.

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Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. If the government imposes a $2 per-unit tax on this product, equilibrium quantity will change to:

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If the supply curve is perfectly inelastic, the burden of a tax on suppliers is borne:

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Refer to the graph shown. With an effective price ceiling at Pc, the effect is an implicit tax on:

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Refer to the graph shown. An effective price floor at $8 imposes a deadweight loss of:

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Rent-seeking activities:

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If price is lowered by law from the market equilibrium value of $5 to a lower value of $4:

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Refer to the graph shown. When the market is in equilibrium, consumer surplus is equal to:

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Refer to the graph shown. An effective price floor at Pf causes consumer surplus to:

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Refer to the graph shown. With an effective price ceiling at Pc, total surplus is reduced by:

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Refer to the graph shown. An effective price ceiling at $3 imposes a deadweight loss of:

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Refer to the graph shown. The segment of the demand curve between the initial equilibrium price of $5.00 and the new equilibrium price of $3.00 is:

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Refer to the graph shown. Assume the market is initially in equilibrium at point b in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S0 to S1. The amount of revenue government will collect from this tax is equal to the:

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Refer to the graph shown. Assume the market is initially in equilibrium at point j in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S0 to S1. The lost producer surplus of this tax is equal to the area:

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Refer to the graph shown. An effective price floor at P_f imposes a deadweight loss shown by:

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Refer to the graph shown. An effective price floor at P_f causes consumer surplus to:

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Refer to the graph shown. Assume the market is initially in equilibrium at point b in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S₀ to S₁. The amount of revenue government will collect from this tax is equal to the:

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Refer to the graph shown. Assume the market is initially in equilibrium at point j in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S₀ to S₁. The lost producer surplus of this tax is equal to the area:

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